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News » Past articles » Hints & tips to get debt recovery "fit" for the New Year

Hints & tips to get debt recovery "fit" for the New Year

2012-12-12

Have you reviewed your terms and conditions of trade recently? Tim Finemore shares some insights to better your position in the event debts are owed to your business.

Where your business is not paid for work completed or goods provided, it clearly makes a difference to your bottom line and cash flow position. Needless to say it can often be a cause of frustration and financial pressure.

All businesses across various industries have a great opportunity to prepare for the New Year by reviewing their terms and conditions of trade. We have found over the past 12 months that many of our clients have not updated their terms and conditions of trade for a significant period of time. Sound business processes and terms of trade limit the need for recovery proceedings and will place you in the best position possible in the event recovery proceedings are required.

We encourage you to consider whether any of the following matters require your attention or a possible review of your business's terms of trade:

1. RETENTION OF TITLE CLAUSES FOR BUSINESSES SELLING GOODS

These clauses may be outdated due to the commencement of the Personal Property Securities Register, which commenced on the 30th of January 2012. If you think the Personal Property Securities Register may affect your business we suggest that you contact us as a matter of priority.

2. INTEREST CLAUSES

We strongly recommend that you include simple and clear interest clauses in your terms and conditions of trade. Although you may not opt to recover interest payments from your regular customers where payment is seldom late, it may however be of use to:

  • encourage your customers to pay on time and
  • in the event of litigation place your business in a stronger position to pursue or negotiate.

3. LEGAL COSTS

We strongly recommend that you include a clear and concise provision in your terms of trade to cover legal costs that may be payable by a debtor. Ordinarily legal costs follow the event in litigation/recovery matters. However, these legal costs usually are awarded on a "party party basis", and in which case you are only likely to recover 50-70% of the legal costs actually incurred. By including a provision for indemnity costs this will ensure you have a contractual basis to recover all of your legal fees. Additionally in the event you require a simple letter of demand, costs can only be demanded from the debtor prior to institution of legal proceedings in the event you have a contractual basis to make that demand.

4. GUARANTEES

It is our experience that guarantees provided by Directors or Individuals are unsatisfactory and often incomplete, and for these reasons such guarantees are often unenforceable.

Where a business offers credit it is imperative that accurate and clear documentation relating to personal guarantees is obtained. We also have found that the guarantees are often from Directors who have little or no assets. It would be prudent in your business’s credit applications and guarantees to require details of any asset/s that show equity above the credit provided to the business that the Director has guaranteed.

If you have any concerns over dealings with new businesses who are asking for credit we can assist you by conducting basic searches to ascertain relevant corporate history and in some instances a history of bankruptcy.

5. JURISDICTION

When dealing with customers and suppliers that are located interstate, it is strongly recommended that your business’s terms and conditions expressly state that all disputes be dealt with by the State of Victoria and its Courts. If your terms and conditions are silent on this issue you may find that any interstate proceedings commenced by or brought against your business put additional financial and time pressures on you when you are required to attend Court in another State.

If you have any queries relating to this content please contact Tim Finemore at tfinemore@richbenn.com.au.

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